While the SEC's approval of Ethereum ETFs may provide some clarity on Ethereum's non-security status, experts believe it could lead to unwanted repercussions on the ecosystem.
After months of deliberations and delayed decisions, the US Securities and Exchange Commission (SEC) has accepted spot ETHs. However, this approval is currently limited to 19b-4 filings, with actual trading authorization potentially taking months as issuers' S-1 applications are still under review.
Bloomberg James Seyphart male The actual trading license can extend over several months.
While the industry praised the so-called progressive move, especially after similar approval of Bitcoin (BTC) ETFs, three experts told crypto.news that Ethereum spot funds could mean more than some imagine.
Centrality and stillness of the ether
The primary difference between BTC and ETH-backed ETFs lies in the individual consensus mechanisms used by both blockchains. Bitcoin uses a proof-of-work model, where miners solve complex mathematical equations to obtain block rewards.
Combined with the general absence of smart contract functionality and the challenge ecosystem, the simple design incentivizes participants to send and hold Bitcoin.
Ethereum is different. Even before the network moved to a proof-of-stake design, ETH was supporting an innovative multi-billion dollar landscape designed for on-chain deployment.
Flipside Crypto data scientist Carlos Mercado said the inability to use ETH residing in funds appears to be counterproductive to the asset's merits. “Holding ETH without using anything is like hoarding barrels of gasoline, which is not an optimal use of the asset,” Mercado explained.
Staking may have addressed these concerns, but all staking language has been pulled from many of the updated spot ETF bids. The SEC has also cracked down on staking providers like Coinbase, adding more speculation about staking adoption in the US.
According to Vega Protocol's quantum developer, Tom McLean, eliminating staking features alleviated questions of centralization, but failed to fully address the issue. Instead of issuers potentially allocating ETH to a single validator or select group, it seems more likely that ETFs will just buy, hold, and sell Ether tokens.
This would lead to “the risk of large amounts of Ethereum remaining unaccumulated and unproduced in the overall system, as it will also not be used for gas etc,” according to McLean.
Regulatory clarity
On the flip side, McLean believes the outcome could prompt investors and issuers alike to seek regulatory clarification on staking. Justin Danthan, Head of Business Development at Keyrock (APAC), echoed similar thoughts and opined that the approved registrations appear to endorse Ethereum as non-security.
The cryptocurrency executive noted that applications were not submitted in the same way as for securities-linked ETFs. “A punter might see this as a clear sign that regulators will no longer consider Ethereum as a security. This would lift the burden off many Ethereum investors and stakeholders.”
Although arguments and certified filings suggest a 180-degree turn from the SEC on ETH's financial instrument status, it remains unclear how the Wall Street regulator views the asset.